Credit downgrade fears mount amid Thailand’s political instability

Amid Thailand’s ongoing political volatility and fragile stability, business and investment confidence have begun to falter. 

Mounting pressure from a crisis of trust and stalled policymaking is driving the country towards a dead end in its efforts to stimulate the economy. All eyes are now on whether this trajectory will ultimately lead to the dissolution of the House and fresh elections next year.

Assoc Prof Ath Pisalvanich, an independent scholar and expert on international and ASEAN economics, said that despite Thailand having appointed a new prime minister, the political turbulence is likely to culminate in a parliamentary dissolution and new general elections. 

He warned that the current instability poses two major risks:

• Declining consumer and investor confidence, and
• The possibility of Thailand’s credit rating being downgraded.

Earlier in April, Moody’s Ratings lowered Thailand’s credit rating to Baa1 and revised its outlook to “Negative,” citing external risk factors. These were largely tied to uncertainty surrounding the United States’ reciprocal tariff policy, which is expected to significantly affect Thai trade.

Now, Thailand risks an additional downgrade, this time due to domestic political instability. Such a move would directly undermine investor confidence and hamper economic growth. 

If downgraded, both the government and private sector would face higher borrowing costs, as lenders would demand higher interest rates to offset increased country risk. 

For private companies issuing bonds or seeking overseas loans, the burden of steeper interest payments would weigh heavily on investment, further constraining economic momentum.

At the same time, Thailand is now bracing for at least three major economic storms.

The United States has imposed an additional 19% tariff on Thai imports, already in effect, which is expected to drag down exports in the remaining months of this year.

With a caretaker cabinet in place for four months before dissolution of the House, there is limited scope to drive economic recovery, as government politicians are likely to focus more on election campaigning than on policy execution.

The unresolved Thai-Cambodian border dispute continues to cast uncertainty, affecting cross-border trade, labour flows and the wider economies of both countries.

“The four-month caretaker administration, which will lead to dissolution of the House and a new general election, will limit economic stimulus. Large-scale national projects that could create jobs and boost economic activity are absent, so GDP growth this year is forecast at only 1.2–1.8%, with the fourth quarter expected to take the hardest hit,” Ath explained.

This outlook is consistent with the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB), which, on September 3, noted that Thailand’s political instability will likely slow growth in the remaining months of 2025. 

The JSCCIB projected GDP growth of only 1% in the second half, with full-year expansion expected at 1.8–2.2%. It warned that political uncertainty could weigh on budget disbursement, dampen private sector investment confidence, and increase the risk of a sovereign credit downgrade.

Kriangkrai Thiennukul, Chairman of the Federation of Thai Industries (FTI), outlined the urgent measures the private sector expects the new government to deliver within the next four months. 

The FTI has proposed that the caretaker administration focus on:

• Easing the cost of living and energy expenses, which directly affect both the public and businesses,
• Supporting SMEs through improved liquidity, tax relief and measures to address non-performing loans,
• Accelerating trade negotiations, particularly with the United States and other key markets, to prevent disruption during the political transition, and
• Modernising business and tax systems to reduce duplication and create a more investment-friendly environment.

Following the parliamentary vote confirming Anutin Charnvirakul as prime minister of the four-month caretaker government, Thailand has gained clarity on political leadership, which Kriangkrai said would help restore confidence among investors and businesses after a period of uncertainty.

He emphasised that the government must appoint capable and decisive figures, particularly in key economic ministries such as Finance, Commerce and Industry. “This will be an important signal to both domestic and foreign investors. Even with a short mandate, the government must work at full speed from day one,” he said.

He acknowledged that four months is far too short to pursue major structural reforms such as tax system overhauls, workforce development or long-term energy strategies. “These require years of continuity before results are visible. For now, the government should prioritise immediate measures to ease pressing problems and foster a positive economic climate,” he added.

However, he also cautioned that political uncertainty remains the greatest drag on investment decisions. Many businesses and government agencies remain in “wait and see” mode, leading to budget disbursement in 2025 reaching only about 50% of its target, thereby constraining cash flow in the economy.

Without clear and decisive policies, he warned, international trade negotiations could stall and new investments may be delayed, posing a critical challenge for the caretaker administration.

Nevertheless, he noted that this limited period still represents a valuable opportunity to stimulate the economy and create a more positive environment for the next permanent government to build upon. The private sector, he said, stands ready to fully support and cooperate with the government to ensure that these urgent measures are implemented effectively.